WASHINGTON - The pharmaceutical industry agreed Saturday to spend $80 billion over the next decade improving drug benefits for seniors on Medicare and defraying the cost of President Barack Obama's health care legislation, capping secretive negotiations with the White House and key lawmakers.

The deal, expected to be announced later in the day, marked a major triumph for Sen. Max Baucus, D-Mont., as well as the administration. The chairman of the Senate Finance Committee has been negotiating with numerous industry groups for weeks as he tries to draft legislation that meets Obama's goal of vastly expanding health coverage, has bipartisan support and does not add to the deficit.

Under the deal, which several officials confirmed, drug companies would pay as much as half of the cost of brand-name drugs for lower and middle-income seniors in the so-called doughnut hole — a gap in coverage that is a feature of many of the plans providing prescription coverage under Medicare.

In addition, the entire cost of the drug would count toward a patient's out-of-pocket costs, meaning their insurance coverage would cover more of their expenses than otherwise.

Officials said Medicare patients with incomes up to about $80,000 or $85,000 would realize some benefit.

Higher rebates to fund programs?While none of the changes in the prescription drug program would directly lower government costs, the industry also agreed to additional measures that would give the Treasury more money under federal health programs. In particular, officials said drug companies would likely wind up paying pay higher rebates for certain drugs under Medicaid, the program that provides health care for the poor.

Those funds would be used to help pay for legislation expanding health insurance for millions who now lack it.

One official said the deal was agreed to late Friday night when Billy Tauzin, head of the Pharmaceutical Research and Manufacturers of America, called Baucus.

It was not clear what impact, if any, the agreement would have on other health care providers who are in negotiations with Baucus.

But at a minimum, the agreement serves as an effective counter to impression that the drive to enact health care legislation was sputtering.

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, said Friday night that "we remain committed to comprehensive health care reform and we are still in discussions with the administration and congressional leaders about ways we can make a positive contribution to this important effort."

The disclosure of negotiations came near the end of an up-and-down week for the administration and its allies on health care.

Earlier setbacksCongressional Budget Office estimates showed early versions of two major Senate bills were either too costly or failed to make a large enough dent in the ranks of the uninsured. Republicans seized on the reports as evidence that Democrats were losing traction.

They leapt again when it was disclosed that House Democrats were considering a wide array of tax increases to finance their legislation, including an income tax surcharge, a tax on employers based on the size of their payroll and a value-added tax, a form of a national sales tax.

House Democrats on Friday unveiled draft legislation they said would cover virtually all of the nation's nearly 50 million uninsured but it came without a price tag or an indication of how it would be paid for.

Major provisions of the 850-page measure would impose new responsibilities on individuals to obtain coverage and on employers to provided it. It also would end insurance company practices that deny coverage to the sick and create a new government-sponsored plan to compete with private companies.

Speaker Nancy Pelosi has said she hopes the legislation can clear the House before lawmakers leave for their annual August vacation.